Sunday, December 23, 2012

Airasia: Competition is not unusual

For a business that has gained momentum, competition is not unusual. Think of the days when PC started - when Apple became a hit, there were tonnes of brands later on. I remember I made a mistake in buying an expensive brand, Amstrad, a brand which you may not have heard of anymore today. Competing against Amstrad, there were thousands of brands, from larger names such as IBM, later Compaq, HP to house brands in Malaysia. Try naming the few surviving PC brands in the world today...

Similarly when the automotive industry was just beginning to be a product for the masses in the 1920s, there were thousands of automotive players in US and Europe. How many are there left today? If you read about the Cola business, it was the same - thousands of them and today left with mainly the 2 big names. Imagine how can a soft drink business selling water and sugar be mainly left with 2 very large companies dominating in this world? There's no technology involved. Neither is it a high barrier of entry business. Other businesses except for the B2B business or where there are protectionism, the trend will remain the same. In fact, in 1984, in a landmark decision, the court splits AT&T into 7 operating Baby Bells. Now there remain to be 2 large (AT&T and Verizon) and 2 smaller players (Sprint and T-Mobile) in the duopoly telecommunication sector in US. Such is the nature of competition. In the low cost carrier business, let me highlight a paragraph on competition from Wikipedia on Ryanair - the dominant low cost player in Europe.

Ryanair on competition

Ryanair now has a number of low-costcompetitors. In 2004, approximately 60 new low-cost airlines were formed. Although traditionally a full-service airline, Aer Lingus moved to a low-fares strategy from 2002, leading to a much more intense competition with Ryanair on Irish routes.

Airlines which attempt to compete directly with Ryanair are treated competitively, with Ryanair being accused by some of reducing fares to significantly undercut their competitors. In response to MyTravelLite, who started to compete with Ryanair on the Birmingham to Dublin route in 2003, Ryanair set up competing flights on some of MyTravelLite's routes until they pulled out. Go was another airline which attempted to offer services from Ryanair's base at Dublin to Glasgow and Edinburgh in Scotland. A fierce battle ensued, which ended with Go withdrawing its service from Dublin.

In September 2004, Ryanair's biggest competitor, EasyJet, announced routes to the Republic of Ireland for the first time, beginning with the Cork to London Gatwick route. Until then, EasyJet had never competed directly with Ryanair on its home ground. EasyJet announced in July 2006, that it was withdrawing its Gatwick-Cork, Gatwick-Shannon and Gatwick-Knock services; within two weeks, Ryanair also announced it would withdraw its own service on the Gatwick-Knock and Luton-Shannon routes.

Ryanair has also responded to the decision of another low-cost carrier, Wizz Air that plans moving its flight operations from Warsaw Chopin Airport in Poland to the new low-cost Warsaw Modlin Airport in Nowy Dwór Mazowiecki. Ryanair had previously operated the route to Dublin from Warsaw but they withdrew claiming that the fees at Warsaw's main airport were too high. When Wizz Air announced they would start operations from Modlin Airport, Ryanair announced several new routes from the same airport, most of which being exactly the same routes as offered by Wizz Air.

From the 60 low cost carriers in Europe, the numbers is much reduced today and in fact, the ones that are really doing well in Europe now remain to be Ryanair and EasyJet. In fact, Ryanair continues to grow in the low-cost airline space and at the expense of other low-cost as well as national airlines. Hence, it is not easy for new low-cost carrier especially when it is a business that relies on high capital expenditure. The stronger the company the more avenue for it to compete against its competitors. Not many companies can obtain financing that easily. Ryanair in fact is the most hated airline in the whole of Europe but it is the most successful today. Amazing on the part of business isn't it?

Many people I know said that Tony Fernandez followed the business footsteps of Richard Branson in the business of airline _Virgin Air. I don't think so (although could not qualify on this) as if you look at the early days of Airasia, one name Conor McCarthy who was the ex-director of operations of Ryanair was a member in the board of Airasia (now still is). Hence, Airasia despite the difficulties may have had begun on the right note with the right people.

Recently, many are wary of the potential competition from Malindo in Malaysia - an airline which LionAir has a 49% stake in. Lion Air is not a small player but it is smaller than Airasia in Malaysia and regionally (except for Indonesia). I do not know what strategy Airasia will initiate in the war against Malindo - if it ever starts to be a real competitor, but my guess is the probably the way Ryanair did to its competitors which attempted to offer services from its base - throwing prices in order to kill competition.

In most businesses, competition is not unusual. In fact, it is embraced as it allows some companies to be stronger. As a commuter, I in fact like it having more options.

However, do not forget that with Airasia planning bigger operations in Indonesia, Lion Air having its base there would like to attack Airasia as well. Like a game of Risk, at the end the right Strategy will win.

On 4 March 2006, Lion Air Flight 8987, a McDonnell Douglas MD-82, crashed after landing at Juanda International Airport.[22] Reverse thrust was used during landing, although the left thrust reverser was stated to be out of service.[22] This caused the aircraft to veer to the right and skid off the runway, coming to rest about 7,000 feet (2,100 m) from the approach end of the runway.[22] No-one was killed but the aircraft was badly damaged.[22]

On 24 December 2006, Lion Air Flight 792, a Boeing 737-400, landed with an incorrect flap configuration and was not aligned with the runway.[23] The plane landed hard and skidded along the runway causing the right main landing gear to detach, the left gear to protrude through the wing and some of the aircraft fuselage to be wrinkled.[23] No one was killed and the aircraft was written off.[23]

On 2 November 2010, Lion Air Flight 712, a Boeing 737-400 (registration PK-LIQ) overran the runway on landing at Supadio Airport, Pontianak, coming to rest on its belly and sustaining damage to its nose gear. All 174 passengers and crew evacuated by the emergency slides, with few injuries reported.[24]

Disclaimer

The content here should serve as the opinion of the writer rather than as an advice to buy or sell. You should do your own research and/or seek expert's advice when doing your investments. Any decision that you made is your own and the author should not be held accountable.